Momentum Monday 13 March

So we go into this new week with a US Bank Failure, a Crypto “Bank” failure, Inflation still rampant and the possibility of entering a recession we didn’t need to have.

All things considered, the market has held up fairly well for now, though this would prove cold comfort to some, especially for investors in more volatile ends of the market, like Coal or Lithium stocks where falling Chinese prices. If this really stresses us out, we all may need to revisit our investment strategy to see whether what you currently do is appropriate to your tolerance to risk.

Before we go into this week’s content remember, if you haven’t already, be sure to watch our Member webinar on the latest reporting season just past. To view a recording of the session click on this link.

We have started introducing further contributors within our “Discuss” section to add some variety to the education and research content you receive. Last week we welcomed Alan Hull who is a renowned technical trader and educator who has kindly agreed to deliver some educational content for those wanting to learn more about Technical Analysis. To see his first education contribution, be sure to read it here.

Further, we are steadily starting to grow our footprint in Australia and New Zealand. We are incredibly thankful for the support of our business and we look forward to curating our content and the program more to suit Australian and New Zealand investors in the months ahead.

It's also a timely reminder that if there is someone you know who would benefit from clear stock insights without the biases or dogma, then we would love to help. Our purpose is to help as many DIY investors with the insights and tools to confident investment decisions themselves. So if you feel someone may benefit from such a service, we would love for them to get in contact.

The agenda for today’s report as always:

• Broader market sentiment

• Stocks of Interest

• 52 week high screen

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Broader market sentiment

JUST A REMINDER: I do not use the market charts to make decisions as to when to buy or sell. I will always use a stock’s individual chart to do that. However, I do look at the market charts to get a sense as to how aggressive/cautios I can be when trading/investing individual stocks.

S&P500

A large part of this week’s negative moves for US markets was fuelled by the comments of Chairman Powell who reminded us that inflation was running rampant and that a possible bigger than normal rate hike might be needed to slow things down a little.

Jobs data released over the weekend showed non farm payrolls rose by 311,000 in February, more than expected, further adding to the idea that current measures are not yet working and therefore more may yet need to be done.

Silicon Valley Bank Failure

But it is not just as simple as raising rates. There is a tightrope the US Economy is walking at the moment. No better emphasised than by Friday’s news of the second-biggest bank collapse in U.S. history, Silicon Valley Bank (SVB) with regulators now taking control. A drastic turn of events following the company's request on Wednesday last week for US$2.25B to shore up the balance sheet, which subsequently saw a US$42 Billion run on it.

Part of the problem has been the Venture Capital space has been getting very jittery. With some high profile Cyrpto disasters in recent times, including most recently last week with the collapse of crypto-focused Silvergate “Bank” *sic*. This along with the news that SVB needed capital, sparked another wave of deposit withdrawals that was too great for the business to bear.

Now there is an uncertain timeline for some clients to retrieve their money and regulators over the weekend were quickly trying to source a buyer. The longer any funds remain frozen the larger a potential issue for the economy, especially those companies in the start up tech space who can’t access their funds to pay staff.

(For your information, SVB was listed in Stockopedia as having a StockRank of 55 prior to Wednesday, so hopefully our global members avoided the stock.)

While I feel the collapse will not have the same impact on sector confidence as when a number of banks failed during the GFC, it's obviously a concern for some tech companies in Australia who have a large US presence. We will learn more on Monday about who was exposed.

But in summary, the full implications on the economy are yet to be known, so watch this space.

Charts

The impact of all these events saw our worst week for the S&P500 since September last year

S&P500 Weekly chart

Last week we said “the US Market remains ‘optimistic’ of a possible turn around” - much of that was sucked away unfortunately and we are back to levels of significance that we need to watch.

Two weeks ago we introduced the level of 3837 that ideally price should stay above, and at least stay above 3818. This is because a breach of both those levels would not only see us with a very short-term lower low, but also see the price fall back into the 2022 downward channel which could potentially be an ominous signal. At 3861.6 we are not too far from these levels so we will all be watching closely.

The latest weekly move will come as a disappointment to many, but often charts are not drawn as pieces of art to be admired. They can be messy and often stressful. The 3582 level remains the last chance saloon point so figures crossed any action over the subsequent weeks (or even days) can stay above that.

Unfortunately the RSI has finally crossed below 50 indicating a negative bias for the market at present. And though MACD remains positive by the slightest of margins unless we get a spike up in the next few days, expect that indicator to turn negative shortly.

Ona final note, be sure to read Edmund Shing’s latest Market Musings contribution as it sets out the major economic items one needs to keep on for global markets. Read it here. It really is an excellent contribution and a great part of your membership to Stockopedia.

S&P/ASX200

If there were hopes that the 10th consecutive rate rise was enough to curb inflationary pressures and induce a pause from the RBA (which Governor Lowe intimated in a recent interview), we received a stark reminder that this is folly, with Myer’s profit showing us sales had grown by 16% for the first two months of their financial year, and that inflation isn’t going anywhere soon.

Just like inflation is most easily passed on to customers at the start of the production food chain, likewise any easing has to commence at the end of the food chain to cause any easing.

Until people stop spending money, inflation is here to stay and the rhetoric from Central Banks about the need to possibly raise rates more aggressively will likely play a little havoc with sentiment.

Frustratingly it was our fifth consecutive down week. With last week seeing the most aggressive sell off of the last five.

S&P/ASX200 weekly chart

Though so many consecutive down weeks brings us closer to the next positive one, for reasons discussed above sentiment may continue to be negative. For now though the 7038 level is still a key point to watch. From Friday’s close 7144.7 that equates to a fall of 1.5%. If the market is unable to hold that level by the end of week, the next potential target becomes the bottom of the sideways channel we have been stuck in, which is around 6500.

It is important to stress here that it is unlikely (though possible) that any move to 6500 will be in a straight line South East. So if the broader move starts to look like we will be testing the lower channel level, there will likely be a bounce at some point providing a more elegant exit for those looking to rebase their portfolio. This can be a difficult emotion for many to manage as selling when prices are bouncing often invokes the feeling, “It could bunce by more”.

However, you must respect what the chart is telling you. And never fear, even if it did keep bouncing and crossed above the top end of the channel,you can always get back in.

And after being stoic in the face of recent selldowns, both the RSI and MACD have turned negative further emphasising the challenged sentiment at the moment

So in summary, the index is still above our key levels of support that we are watching. However with a weak day expected Monday on account of Friday’s US sell-off, what will be critical is how the market performs for the remainder of the week. I suspect the washing up of the SVB failure, either acceptable or disappointing, will have an impact on sentiment here.

While for now we are holding, we are not turning our backs. (Not that we ever will… but you know what I mean).

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Stocks of interest

Tip: if you look at the list on the right hand side you will see the stocks mentioned within this week's contribution.

Author note: In line with the approach I am using with Stockopedia, I will focus the majority of my attention to stocks with a QM rating above 80 and market cap above $500M. For those who may be new to this report please read the last instalment of my momentum journey here. I will discuss where their charts presently sit to provide context for potential and current investors. You can revisit the series of articles starting with Episode One here.

These stocks are considered purely for the purposes of education. Be sure to read all relevant commentary to understand the context from which a chart is presented. It’s not always positive!

ASX:AX1 Accent Group. QM Rank 99 $2.32

Let’s start with a more positive looking chart for Accent (ASX:AX1) .

ASX:AX1 1 year Daily chart

Since bouncing off support in September 2022, the stock has enjoyed a strong trajectory up creating a series of higher highs in the face of rising rates and rising cost of living pressures.

It has since eased off 10% from its recent highs, so for those considering a position in the stock now a pullback to around the $2.20 level would be appropriate. That is right on the ATR level and the old adage, “we won’t have to wait long to know if we are wrong” rings true as a stop loss of around $2.03 - $2.04 would be advised (for new and existing investors) as that level coincides with the previous structural higher low.

With more rate rises to come, our risk management strategy needs to be in place with stocks like these. But as proven over the last six months, a company can still do well even when you think it shouldn’t, so let the chart be your guide.

ASX:ALL Aristocrat QM Rank 96 A$36.44

We last discussed Aristocrat Leisure (ASX:ALL) back in January when the price had started to bounce off the May 2022 lows. Fast forward to today and the price has recently come up against short term resistance at the November 2022 level of $37.83.

ASX:ALL 1 year Daily chart

The rejection on Friday now means that level is significant and therefore investors looking to take a position in ALL prior to the report in May may wish to wait for a confirmation of a break of that level before jumping in.

For those aggressive traders thinking of a position now in anticipation of a good operational result, supported by strength in the USD (which helps with earnings translation into AUD) a stop loss of $33.70 would be appropriate.

ASX:WDS Woodside Energy QM Rank 93 A$24.05

Speaking of stocks moving within channels, Woodside Energy (ASX:WDS) has managed to do relatively well by holding its own in the face of energy price falls. No doubt the additional assets, stronger USD and the strong dividend are helping things here.

ASX:WDS 1 year Daily chart

While it is obvious that from a short-term perspective, the bottom range of the channel is an immediate level to watch, especially after being tested four times within the last 3 months.

For longer term holders the low of $28.85 back in May 2022 would be a more appropriate level of support as that was the point of the higher low after the late 2021 run which was quite strong.

But the reality is that oil and gas prices plus the strength of the USD will play a role inthe short term trajectory of WDS.

ASX:INA Ingenia Properties QM Rank 92 A$3.75

A stock which hasn’t been discussed before (and probably for good reason) is Ingenia Communities (ASX:INA). The stock having been stuck in a $3.50 - $4.90 for most of the past 12 months.

ASX:INA 1 year Daily chart

Following the gap down in February the stock looks destined to retest the $3.50 - $3.60 mark. However despite the sell off, much like ALQ, the drop this time has not been supported by volume as theOBV has remained relatively stable.

This lack of conviction may on the sell down may encourage some traders to consider taking at a position closer to the bottom of the channel in the hope that once this short term move is over, sentiment may return it closer to channel highs.

ASX:HUB Hub24 QM Rank 98 A$29.46

Wealth platform manager Hub24 (ASX:HUB) is another stock that continues to power on.

ASX:HUB 1 year Daily chart

It looks for all intents and purposes that it wants to retest all time highs at $33.13. Before then though the company has a gap to fill, recently created following the release of the company’s half year report. Therefore, those investors yet to get into the stock may wait for a price close to $27 as a better entry point. A stop loss would be set at $24.84.

Remember HUB makes money based on funds on the platform. The market knows this. So any prolonged volatility in markets may see the stock fall, perhaps unfairly, just based on sentiment so ve sure to have your stops in place.

ASX:PWH PWR Holdings QM Rank 94 A$10.06

We last spoke of PWR Holdings (ASX:PWH) in the 23 January 2023 Momentum Monday edition. Back then we talked about the long term significance of the $10 level. And like a magnet to the price, we find ourselves back here.

ASX:PWH 1 year Daily chart

For those that were holding, or for those that waited for the pullback to consider buying, this was the stop loss level we talked about.

For those yet to take a position, the significance of this level for PWH’s perspective may mean that an aggressive trader may want to take a position at these levels with a parachute stop loss set at the 200 day MA level of $9.50. However one would be excused for waiting to see how we start the week given the current circumstances.

ASX:ASX Limited. QM Rank 84 A$67.36

After the lengthy and costly failed foray into the Blockchain exchange platform, is it any wonder ASX (ASX:ASX) has experienced negative sentiment of late. It’s a cash printing machine who investors will now hope will start paying higher dividends now that it has scrapped its money pit project .

ASX:ASX 1 year Daily chart

Since the middle of October the price has been bubbling along support at $65.50 and the price today is currently close to that. The fact it has tested these levels 5 times in 5 months indicators that there is some stoic resistance here. Therefore it is a perfect place to put a stop loss.

As for a good entry point, well the stock has to do quite a bit to regain the confidence of investors. As mentioned before I generally don’t buy stocks if they are below the 2.5x ATR multiple, but even if it got above the $69.55 level, given the significant pullback over the past 6-7 months, I would be likely to wait until a cross and subsequent consolidation of $72.77 before getting in.

Even then, such rebounds after protracted long pullbacks can often lead to false signals which is why any purchase would be accompanied with a stop loss level.

ASX:BKL Blackmores. QM Rank 98 A$74.09

Which is a good lead in to our next company.

They say patience is a virtue, but in markets it can also be a hindrance. As investors in Blackmores (ASX:BKL) will espouse.

ASX:BKL 1 year Daily chart

Since the 2015 highs of over $200, BKL has experienced enough internal turmoil that not even a bottle of their Stomach Settle Digestion tablets could help with.

All that said and done, for the last three years the stock seems to have found some sort of floor around the $62 level, most recently bouncing off that level in October 2022.

ASX:BKL 5 year Weekly chart

Pleasingly the bounce saw a new short term higher high created, which may provide some confidence that the trajectory is changing for BKL. The stock is currently performing its usual retrace and provided it can stop falling above $62 we will have a new higher low, again a sign that some positivity may be returning.

However even if it does that, investors will remember the false run of 2021, where despite creating a new higher high, the move failed and retested $62. Of course this doesn’t mean it will be the same thing this time around. But investors should go in with eyes wide open, lest any short term positive move be nothing more than a placebo.

ASX:ALQ ALS Limited. QM Rank 93 A$11.36

We talked of ALS (ASX:ALQ) in the first edition of Momentum Monday. At the time the price was coming up against short-term resistance at $12.45 and we were a little concerned about the price recovery as volume (as measured by OBV) had not kept pace with the price rise. Subsequent to publishing, the price kept rising, and still OBV wasn’t supporting the run.

ASX:ALQ 1 year Daily chart

Interestingly after its little run, the price reverted back to the $12.45 area where it held for some time. That was until last week when long serving company man and current CEO Raj Naran abruptly notified his intention to step down for personal reasons.

The breaking of support unfortunately means the lows of the past twelve months at $10.00-$10.03 come into play and will be a critical support level for price to hold.

This example once again highlights how aggressive moves (either positive or negative) can occur around areas of support/resistance which is why investors need to keep a close eye on them, when they see their prices bubbling around.

NZE:SKL Skellerup Holdings QM Rank 86 NZ$5.08

After a stellar period from late 2020 to late 2021 where the price rose threefold, Skellerup Holdings (NZE:SKL) has seen a significant consolidation in price over 2022.

NZE:SKL 1 year Daily Chart

The company has seen its price struggle to maintain the momentum of 2021 and has held up daily well in the face of shat would appear to be some aggressive selling, espeially in August to November last year, where volume spike weren’t enoughto push the company much farther than the NZ$5.00 level.

That said, the price is now flirting with that level again, and investors who rode the success may be wary at this point.

NZE:SKL 2 year Weekly chart

While the biggest breach of $5.00 came in June 2022, the price has regained its footing, but seems to be consistently dragged down as evidence by the succession of lower highs

For short-term traders, there is an immediate risk of a downside break to the pennant which has formed since the high of February 2022. Though technically speaking the tennant has been broken already as the low last week was enough to create another short term lower low. Therefore risk are to the downside with a possible reversal pattern emerging.

For those that have held the stock longer, the low of June 2022 was significant and long ago enough to now be our level of structural support and therefore a break below $4.46 will confirm once and for all that sentiment has moved against SKL

ASX:ARU Arafura Rare Earths. QM Rank 84 A$0.585

Late last month, stocks in the rare earths sector started to weaken as word started to spread that Tesla are wanting to make batteries without rare earths.

In an attempt to steady investor nerves, companies were quick to remind everyone that only small amounts of rare earths are used in the manufacture of batteries.

But instead, it warned investors that the run up, much of which was based on the previous idea that rare earths are used significantly in batteries, could have been a false hope, so there has been sector wide selling.

As a result Arafura Rare Earths (ASX:ARU) has been caught up in the negative sentiment after what had been a strong start to the year.

ASX:ARU 1 year Daily chart

The price pullback to early March has seen the stock create a short-term lower low. If this rebound is not sustained which would me a new lower high, then hopefully the price can stay above $0.54 other wise we are in a new downward trend. Following such a rapid rise, investors best ensure their downside is protected as stocks like this could have rapid pull backs.

Investors wouldn't consider getting back in at this point until the price crosses back above $0.65, or preferably $0.68.

ASX:MYR Myer Holdings QM Rank 97 A$1.07

We first spoke of MYR at $0.65 st the start of this calendar year. Since then it also received a mention at the end of January, and after a 65% rise we will discuss it again.

ASX:MYR 1 year Daily chart

The strong business update at the time of the half year result saw the stock gap up and for those that have missed both runs to this point, they may consider waiting for the gap to fill before considering a holding.

Note: Stocks that go up aggressively have a tendency to pullback just as quick. So if you intend to trade MYR based on sentiment, notwithstanding the strong fundamental result, ensure appropriate risk management is in place.

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52 Week High screen

Academic Research has shown that stocks close to their 52 week highs tend to outperform.

To that end I have attached the results of a screen run within Stockopedia showing every stock above 200 million market that is trading at least 5% from its 52 week high. (If you wish to recreate this criteria in the scanner select "Price vs 52 high" greater than -5%)

This has not considered liquidity of the stock nor does it consider its fundamental qualities. However we have included each factor score to help you.

Data is at 10 March and is sorted by the stocks closest to their 52 week high.

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This communication may contain general financial product advice. It has been prepared without taking into account your personal circumstances, and you should therefore consider its appropriateness in light of your objectives, financial circumstances and needs before acting on it.

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The author holds interests in the following stocks mentioned in this article: ALL, AX1, MYR. This position can and will change at any time without notice.